Contradictions and consequences

April 29, 2007

The Medicare Modernization Act of 2003 may be known best as the bill that created a prescription drug benefit for millions of elderly Americans. But that fails to capture the epic contradictions at its heart.

The law prohibited the federal government from using its enormous marketing clout to negotiate the lowest drug prices with manufacturers. It also directed billions of dollars to private insurance companies that were supposed to "compete" with traditional Medicare - but not the kind of real competition that could drive down costs. The bill required extra payments to private insurers that provide managed care to the elderly; they're paid, on average, 12 percent more per patient than what traditional Medicare pays per patient.

A less-well-known part of the law was a provision that triggered alarm bells if Medicare began gobbling up too much general tax revenue in addition to the dedicated tax that is supposed to pay for its programs. That alarm sounded this week. Now, the president is required to propose action to bring Medicare spending back into balance.

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President George W. Bush already has floated a couple of ideas, including automatic spending cuts that would have the effect of limiting benefits and charging higher fees for some patients. But, predictably, he is refusing to reconsider the option of letting the government negotiate prices with drug manufacturers, just as it now does for veterans and the poor.

Last week, Senate Republicans did the president a favor by blocking a bill that would have allowed such negotiations; a similar bill has passed in the House. Mr. Bush has promised to veto any such bill, as well as any attempt to cut the overpayments to Medicare Advantage plans, the HMOs for the elderly created under the 2003 law.

By blocking the drug negotiations bill last week, Senate Republicans prevented Mr. Bush from having to explain why - when the law requires him to bring Medicare spending back in balance - he would veto bills that could save billions, while at the same time proposing automatic spending cuts and higher fees for Medicare patients. The overpayments to Medicare HMOs alone will cost about $65 billion over the next five years, and a staggering $160 billion over the next decade.

Fortunately for the president, he won't have to lay out the details of any Medicare cuts until he presents his 2009 budget, which goes into effect in October 2008. And since his term ends three months later, he won't have to live with the political consequences of wasteful Medicare spending for long. Unfortunately, millions of American taxpayers and the elderly will - as will his White House successor. Privatizing parts of one of the most popular and well-run government programs ever created was a terrible idea when Republicans hatched it in 2003. Essentially mandating overpayments to private insurance companies and overpaying for drugs undoubtedly have been good for some of the Republican Party's most reliable and generous campaign contributors in the pharmaceutical and insurance business. But they've shortchanged and overcharged the American people in the process.

As their thoughts turn to 2008, the Democrats who now control Congress - and White House hopefuls of both parties - should be thinking long and hard about how to fashion a Medicare program that best serves the needs of American people - not campaign contributors. That will be a true test of fiscal restraint and political courage.